Avoiding new build LVR vagaries
Question from Liz updated on 14th June 2017:
My bank has changed their policy and no longer lends to investors for new builds. This does not suit me. I wish to discharge my owner occupied property that they hold as security, repay the minimum loan amount to meet LVR requirements on my two rental properties and explore investing with another establishment.
One of my rental properties is a recent build, a house and land package funded by the bank, and completed March 2016. But the bank rep insists that to discharge our owner occupied property we would have to meet the 60% LVR requirements for the old rental AND the new build.
I understand the new rules are being applied, but I don't see how this can apply to new builds (which are exempt under old and new LVR rules). I appreciate that we have been bitten by the 'one bank trap'. So I want some advice on how to escape and what right of appeal we have with the bank to consider our request to repay the new build at the 80% LVR level.
Our expert Kris Pedersen responded:
There is some confusion with banks applying variances on what they consider new builds. But all banks will now consider your recent build to be an existing dwelling. Unfortunately, this means they won’t allow any movement on the LVR across both the existing and the "new" investments being kept at 60% if you look to remove your owner-occupied property.
This is one of the annoyances with how the new rules have been rushed in. There are many people who were only selling to get access to capital. But now, if they have multiple investments with the same bank, they are being made to keep the remaining LVR at 60%. We have heard of several cases where they would not have sold if they had known this would be the case.
In your situation, you should consider looking at a prime non-bank option. They can still lend above the 60% threshold as they are exempt from the new regulations. Potentially, you could move your "new build" to one where, if you fit criteria, they will lend to 80% on the property.
Kris Pedersen of Kris Pedersen Mortgages is a commentator on property and finance. His team sources top finance strategies. www.krispedersen.co.nz